Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
PRINCIPAL ISSUE Is a payment received in lieu of earnings for the period of notice of termination by virtue of the terms of the taxpayer's employment considered employment income or retiring allowance ?
Position It is an employment income.
Raisons The Act and Interpretation Bulletin IT-337R3
Signed on November 22, 2000
XXXXXXXXXX
Dear XXXXXXXXXX:
Thank you for your correspondence of October 2, 2000, concerning an amount received by an employee in lieu of notice at the time of termination.
The confidentiality provisions of the Income Tax Act prevent me from discussing information regarding specific taxpayers without their written authorization. However, 1 am prepared to provide the following comments which are of a general nature.
As discussed between you and Mr. Michel Lambert, Senior Rulings Officer, on October 16, 2000, the CCRA normally considers that an amount received by an employee in lieu of reasonable notice pursuant to the terms of employment, explicit or implicit, or for the notice period required for termination of employment under provincial employment or labour standard laws, will be taxable as employment income under subsection 5(1) of the Act. An amount received in lieu of notice can be distinguished from a retiring allowance, because it is to replace earnings which would otherwise have been earned under the terms of employment. The CCRA has confirmed this view in paragraph 4 of IT-I 96R2, Payments by employer to employee, paragraph 15 of JT-365R2, Damages, settlements and similar receipts, and paragraph 7 of IT-337R3, Retiring Allowances. A copy of each of these Interpretation Bulletins is attached for your information.
The term retiring allowance" is defined in subsection 248(1) of the Act to mean an amount received on or after retirement from an office or employment in recognition of long service or for a loss of office or employment. Consequently, any amount paid to compensate an employee for loss of employment over and above the amount that represents pay in lieu of notice, is generally considered a retiring allowance.
Paragraph 8(1 )(b) allows a deduction for amounts paid by a taxpayer in the year as or on account of legal expenses incurred by the taxpayer in collecting or establishing a right to a salary owed to the taxpayer by an employer or a former employer of the taxpayer. Where a taxpayer has a right to deduct an amount under paragraph 8(1)(b) of the Act, the CCRA is generally prepared to waive the withholding requirement for such an amount provided that the appropriate information slip is prepared, generally a T4.
I trust the information provided will be of assistance.
Yours sincerely,
Bill McCloskey Assistant Commissioner Policy and Legislation Branch Michel Lambert October 23, 2000 957-8962 2000-005044